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Japan weakens yen as crisis grips

The Japanese government said it intervened in currency markets Thursday to counteract “excessive” speculator driven movements with yen that threatened to destabilize Japan’s fragile economic recovery.

AFP - Japan on Thursday intervened in currency markets to weaken the yen in an effort to help safeguard the nation's fragile economy from the unit's recent surge close to a post-war high.

Finance Minister Yoshihiko Noda said the government intervened unilaterally to counter "one-sided" and "excessive" speculator-driven movements that threatened Japan's recovery from the March 11 earthquake and tsunami.

"If the moves continue, it could negatively impact the Japanese economy and financial stability when Japan is making various efforts to reconstruct itself following the impact of the disaster," Noda told reporters.

"Therefore we carried out currency intervention. Now we will watch market movements closely." Officials declined to comment on the size of the intervention.

Japan's first intervention since March saw the yen fall shortly after 0100 GMT, and by 0345 GMT the dollar had risen sharply to 79.00 yen from 76.99 yen earlier.

The Japanese unit also fell against the euro, with the single currency fetching 112.92 yen from an earlier 110.45.

The Bank of Japan shortened its scheduled two-day meeting that was due to conclude on Friday and was instead expected to decide on further monetary easing later on Thursday to complement the government's intervention.

The impact of the March earthquake and tsunami plunged Japan's economy into recession, but as the nation's companies have scrambled to restore supply chains, output levels have begun to rise again.

However, that recovery has been overshadowed by a soaring yen that threatens the post-disaster rebound of exporters.

A strong yen erodes repatriated earnings and makes it harder for companies to make money on products made in Japan and sold overseas, prompting firms to speed up a shift towards more production overseas.

But analysts questioned how effective Thursday's intervention will be, given that the yen's strength has been due to continued weakness in currencies such as the dollar and the euro amid fears for the US and Eurozone economies.

A deal to raise the US debt ceiling and avoid default this week failed to relieve the pressure on the greenback, with attention on a weakening US economy and the threat of a downgrade.

"It is hard to see the move higher in the pair as anything more than temporary," amid clear signs of the US economy slowing, IG Markets said in a client note.

Japan's last intervention in March with its G7 counterparts -- after the yen hit a post-war high of 76.25 to the dollar after the earthquake -- helped push it to as low as 85 to the dollar in April, but the unit has since strengthened. Thursday's intervention was Japan's first unilateral move since September 2010. Analysts said authorities would likely continue to sell the yen throughout the day.

Officials had in recent days raised their rhetoric against the surging currency in a bid to cool it with the threat of intervention.

Noda on Tuesday said the yen was "overvalued", while Bank of Japan governor Masaaki Shirakawa on Wednesday warned of its impact on exporters.

"The market was braced for the move after Bank of Japan officials voiced concern that the higher yen would lead to a deterioration in the sentiment of Japanese firms," said an analyst at a Japanese bank.

"The authorities needed to surprise the market to maximise the impact of the intervention," the analyst said, adding that the move was timed to occur ahead of the release of a key US employment report on Friday.

The move also came after the Swiss central bank lowered its key rate Wednesday to stem the rise of the franc, also regarded as a "safe haven" for investors withdrawing their funds over eurozone debt worries.